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SKF India: Still no respite - Views on News from Equitymaster
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SKF India: Still no respite
Nov 3, 2009

Performance summary
  • Topline declines by 4.1% YoY during the quarter, presumably on account of lower demand from the industrial sector.
  • Operating profits decline by 19% YoY, higher than the topline, thus causing EBITDA margins to decline by 2.1% YoY to 11% in 3QCY09.
  • Bottomline declines by 16% YoY, lower than operating profits mainly due to significant rise in other income.
  • For the nine month period, net profits declines by 43.2%YoY on the back of 11.7% YoY fall in the topline.


(Rs m) 3QCY08 3QCY09 Change 9mCY08 9mCY09 Change
Raw material 1,169 1,045 -10.7% 3,096 3,016 -2.6%
% sales 27.2% 25.3%   24.7% 27.2%  
Purchase of traded goods 1,639 1,664 1.5% 4,850 4,246 -12.4%
% sales 38.1% 40.3%   38.7% 38.4%  
Employee cost 314 335 6.7% 912 978 7.3%
% sales 7.3% 8.1%   7.3% 8.8%  
Other Expenditure 619 628   1,958 1,657  
% sales 14.4% 15.2% 6% 15.6% 15.0% -4%
(* annualised, ** on trailing twelve months earnings)

What has driven performance in 3QCY09?
  • While the topline declined by 4.1% YoY basis in 3QCY09, the same grew by 9.2% QoQ as the economic revival maintained its momentum during the quarter. It may be noted that around 90% of sales of company are contributed by bearings, which primarily cater to automotive and industrial sectors. Automotive sector, particularly two and three wheelers segment has shown strong signs of recovery during the quarter. Certain industrial segments also witnessed a revival in demand during the quarter.

  • On the operating front, lower than proportionate decline in the operating cost as compared to topline resulted in a 19% YoY decline in the operating profits. Except for raw material costs, all the costs heads (as a % of sales) showed an increase during the quarter. Operating margins declined from 13.1% in 3QCY08 to 11% in 3QCY09.

    Cost break-upů
    (Rs m) 3QCY08 3QCY09 Change 9mCY08 9mCY09 Change
    Net sales 4,304 4,128 -4.1% 12,537 11,068 -11.7%
    Expenditure 3,741 3,672 -1.8% 10,815 9,897 -8.5%
    Operating profit (EBDITA) 563 456 -19.0% 1,722 1,171 -32.0%
    EBDITA margin (%) 13.1% 11.0%   13.7% 10.6%  
    Other income 28 51 84.2% 76 86 13.3%
    Interest (net) (43) (32)   (126) (95)  
    Depreciation 71 72 1.4% 218 219 0.6%
    Profit before tax 564 467 -17.1% 1,705 1,133 -33.5%
    Exceptional Items       - (168)  
    Tax 194 157 -19.1% 591.40 333 -43.6%
    Profit after tax/(loss) 370 310 -16.0% 1,114 632 -43.2%
    Net profit margin (%) 8.6% 7.5%   8.9% 5.7%  
    No. of shares (m) 52.7 52.7   52.7 52.7  
    Diluted earnings per share (Rs)*         15.1  
    Price to earnings ratio (x)**         16.8  

  • Net profits declined by 16% YoY, lower than the operating profits mainly due to significant rise in the other income during the quarter. Moreover lower tax outgo positively impacted the bottomline. However, higher depreciation charges and fall in interest income had an adverse impact on the bottomline.

What to expect?
At the current price of Rs 255, the stock is trading at a multiple of 8.3x its estimated CY11 earnings per share. While we have estimated no growth in the topline and a 16% decline in net profits for CY09, the company reported a greater decline on both the fronts during the nine months. However, we believe that the company should be able to make up for the decline in the forthcoming quarters on the back of revival in the economy. We remain positive on the stock from a medium term perspective.

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